January, 2008:

Altria on Wednesday set a date for the long-awaited spin-off of Philip Morris International, putting in motion the break-up of the world’s largest cigarette maker.

The move, due on March 28, will allow investors a choice between the fast-growing international operations and the remaining Altria business, which is tied to the declining US market.

Under a stabilising US tobacco litigation environment, Louis Camilleri, chief executive, has moved to break up Altria, which was viewed more valuable in pieces than together. Last year, it completed the spin-off of Kraft, its US food group.

The spin-off also decouples PMI from some US litigation concerns and gives it stock to use as currency in rapid industry consolidation. It also allows Altria to make its own strategic moves for the domestic business.

Putting the final details on the spin-off plan, launched last August, Altria said the companies would be focused, flexible and financially powerful to compete in their markets.

After the split, PMI and Altria will launch share repurchases of $13bn and $7.5bn respectively over two years, and will pay dividends of $1.84 and $1.16 this year.

Mr Camilleri will become chief of PMI, which will be based in Lausanne, Switzerland, and maintain an office in New York.

Altria will close its New York office and be based in Philip Morris’s long-time home of Richmond, Virginia. The group will comprise Philip Morris USA and also retain its minority stake in brewer SABMiller. It will be headed by Michael Szymanczyk, chief executive of PMUSA.

Under the deal, shareholders of Altria as of March 19 will receive one share of PMI for each share they hold of Altria.

PMI will trade on the New York Stock Exchange under the planned symbol of PM, Altria said.

On Wednesday Altria provided an upbeat financial outlook for the separate businesses this year. It expects PMI’s earnings to increase 12-14 per cent from last years $2.78 per share.

Altria’s US business is expected to rise 9-11 per cent from last years $1.50 per share. Last year, Altria’s revenues increased 10 per cent to $73.8bn. US revenues were flat at $18.5bn, while total international tobacco sales rose 14 per cent to $55bn.

By Nicholas Zamiska and Juliet Ye in Hong Kong and Vanessa O’Connell in New York – The Wall Street Journal

China is hoping a partnership with Philip Morris can make it a global player in the tobacco business.

After more than three years of negotiations, the Chinese government has selected three domestic cigarette brands, of the hundreds sold, to market abroad in partnership with Philip Morris International, according to PMI and the Chinese companies involved.

China has more smokers, some 350 million, than the U.S. has people. China’s booming tobacco industry, which the government says generates about $30 billion of annual tax revenue, is an important part of the national economy. But all cigarettes in China are produced under stringent quotas restricting the industry’s domestic growth, and so far, the industry’s international efforts have been marginal at best.

Now, China National Tobacco Corp., the country’s state-owned cigarette monopoly, is hoping to change that. China and PMI have chosen markets for the three brands, although PMI says only that they are in Central Europe, Eastern Europe and Latin America.

The rollout is part of a December 2005 deal in which Philip Morris agreed to market Chinese brands internationally in exchange for the right to produce its own Marlboro brand at Chinese state-owned factories. The Chinese cigarettes will be made in factories owned by CNTC and PMI, according to PMI, which is expected to be split off soon from Altria Group Inc.

The joint venture will serve as another test of China’s ability to transplant homegrown brands, not just products, overseas. It has succeeded with such familiar names as Haier appliances and Lenovo computers, after years of watching foreign brands infiltrate the mainland and capture loyal followings. The question is whether it can pluck three cigarette brands — RGD, Harmony and Dubliss — from relative obscurity and elevate them to an international, or at least regional, presence.

This isn’t the first time China has entertained ambitions of going global with its cigarettes. Golden Deer cigarettes are sold in Russia through a joint venture with Japan Tobacco Inc.’s Gallaher Group and have entered the American, Taiwanese, Middle Eastern and African markets, according to a booklet handed out by CNTC officials at an international tobacco-industry conference in Paris in November.

Operating mostly on its own, CNTC has been forced to use a complex patchwork of arrangements to get its products into various regions. Through its joint venture with PMI, based in Lausanne, Switzerland, CNTC will have access to one of the industry’s most powerful distribution networks. With a 15% share of the international tobacco market, PMI does business in more than 160 countries. It can introduce a cigarette brand in dozens of countries at once.

CNTC, based in Beijing, declined to comment.

PMI Chief Executive André Calantzopoulos said the venture was delayed partly because of cultural differences. “By Chinese standards, urgency is in terms of decades, versus U.S. companies, where urgency is next quarter,” he said.

In anticipation of the expected announcement on 30 January 2008 of the timing of Philip Morris International’s spin-off, public health organizations worldwide say there is heightened urgency for governments to enact comprehensive laws to control Philip Morris and other tobacco companies.

“The unleashing of Philip Morris International from Philip Morris USA poses the risk that Philip Morris International will become even more predatory in pushing its toxic products to young people worldwide,” says Anna White, of the U.S.-based corporate accountability group Essential Action, “An independent Philip Morris International, which is likely to be based in Switzerland, will no longer feel constrained by public opinion in its home country and most important market, the United States.”

Altria/Philip Morris is the world’s biggest multinational tobacco corporation. Eighty percent of its sales are outside of the United States.

The company announced last August its intention to pursue the spin-off. Today, Altria’s Board of Directors is expected to finalize the decision and announce the timing of the spin-off, assuming required regulatory approvals.

More than 150 public health organizations in over 70 countries worldwide have endorsed a call on governments to adopt comprehensive tobacco control measures to ensure that the spin-off of Philip Morris International does not worsen the tobacco epidemic. Among other measures, they are urging that governments ratify and strongly implement the Framework Convention on Tobacco Control, ban the tobacco industry from lobbying or working on legislation to implement the global treaty, and exclude tobacco products from bilateral and multilateral trade and investment agreements. A list of their demands is available at www.philipmorrisbreakup.org/calltogovs

“An independent Philip Morris International based outside of the United States will be immune to even the possibility of domestic regulation in the United States or litigation in U.S. courts,” said Anna White, “This has been a real threat to Philip Morris International.”

The litigation risk to Philip Morris International was recently made apparent in the U.S. government case against the tobacco industry. In that case, U.S. Judge Gladys Kessler ruled that Philip Morris and other tobacco companies must stop using misleading terms like “light,” “mild” and “low” (as in “Marlboro Lights”). The tobacco industry has used these terms to deceive smokers into thinking they are using a reduced risk product, when they are not. Judge Kessler ruled that the prohibition on use of these misleading terms extends to Philip Morris International. If an independent PMI had no connection to the United States, the judge would not have been able to issue this order.

“The World Health Organization projects that 10 million people will die annually from tobacco-related disease by 2030, 70 percent in developing countries,” says White. “We must work to lessen this toll, not allow an independent Philip Morris to make it worse.”

“The breakup of Philip Morris will unleash a Philip Morris International that will be even more predatory in pushing its toxic products worldwide,” says Robert Weissman, director of Essential Action, a corporate accountability group based in Washington, D.C. “An independent Philip Morris International, which is likely to be based in Switzerland, will no longer feel constrained by public opinion in its home country and most important market, the United States.”

Altria/Philip Morris is the world’s biggest multinational tobacco corporation. Eighty percent of its sales are outside of the United States.

The company announced last August its intention to pursue the spin-off. Today, Altria’s Board of Directors is expected to finalize the decision and announce the planned timing of the spin-off.

Essential Action has spearheaded an effort by more than 150 public health organizations in over 70 countries worldwide to respond to the Philip Morris break-up. The groups have urged governments (www.philipmorrisbreakup.org/calltogovs) to adopt comprehensive tobacco control measures to ensure that the spin-off of Philip Morris International does not worsen the tobacco epidemic. Among other measures, they are urging that governments ratify and strongly implement the Framework Convention on Tobacco Control, ban the tobacco industry from lobbying or working on legislation to implement the global treaty, and exclude tobacco products from bilateral and multilateral trade and investment agreements. Public health groups have also called on Philip Morris to commit to public health principles — a set of principles the company has rejected.

“An independent Philip Morris International based outside of the United States will be immune to even the possibility of domestic regulation in the United States or litigation in U.S. courts,” says Anna White of Essential Action, “This has been a real threat to Philip Morris International.”

The litigation risk to Philip Morris International was recently made apparent in the U.S. government case against the tobacco industry. In that case, U.S. Judge Gladys Kessler ruled that Philip Morris and other tobacco companies must stop using misleading terms like “light,” “mild” and “low” (as in “Marlboro Lights”). The tobacco industry has used these terms to deceive smokers into thinking they are using a reduced risk product, when they are not. Judge Kessler ruled that the prohibition on use of these misleading terms extends to Philip Morris International. If an independent PMI had no connection to the United States, the judge would not have been able to issue this order.

The Wall Street Journal reported on January 29 on Philip Morris International’s plans to inflict on the world an array of new products, packages and marketing efforts. According to the Journal, these are designed to undermine smokefree workplace rules, defeat tobacco taxes, segment markets with specially flavored products, offer sweetened cigarettes sure to appeal to youth, and overcome marketing restrictions.

“The World Health Organization projects that 10 million people will die annually from tobacco-related disease by 2030, 70 percent in developing countries,” says White. “We must work to lessen this toll, not allow an independent Philip Morris to make it worse.”

Weissman notes that there is also a danger of the independent Philip Morris International selling its new products into the United States — perhaps immune from the modest marketing restrictions now imposed on the major tobacco companies as a result of past litigation.

I refer to the letter by “public health physician” Dr W. Y. Wan (“Tax is best way to fight tobacco”, January 28).

The government should not unconditionally increase tobacco tax so that it reaches record-high levels. It is obvious that there is a market demand for cigarettes.

If there is a substantial increase in tax, the criminal syndicates will seize the opportunity to import untaxed cigarettes and such smuggling activities will increase.

As a result, the revenue derived from the tax on cigarettes which are sold legally, could go down. The only people who will benefit from this are the criminals.

Surely, education is the best course to follow. We have to educate people who are not yet addicted about the negative effect smoking will have on them. I think the graphic pictures on cigarette packets (showing the effects of smoking), can get the message across. We should also offer encouragement to people who are addicted to smoking to quit. More must be done to try and put more young people off smoking.

Enforcement policy should also be reviewed. It has been argued that the Tobacco Control Office has not been effective.

There are still people smoking in places where it is banned, such as karaoke bars. The office must be given more teeth.

NEW YORK -(Dow Jones)- Philip Morris International, Altria Group Inc.’s (MO) soon-to-be-independent international business, will begin manufacturing and selling its famous Marlboro brand in China later this year, a move that could eventually provide a big boost to the international tobacco company.

That move is part of a deal struck with the state-owned Chinese tobacco company a few years ago, and it’s taking off after lengthy discussions. China has an estimated 350 million smokers, and at the moment Marlboro isn’t manufactured in the country.

Altria Chief Executive Louis Camilleri said in a Wednesday conference call that Marlboro will be made and sold in China within the first six months of this year. The production of Marlboro in China, part of a deal that Altria cut in 2005 with the state-owned China National Tobacco Co., would not be subject to any quotas.

At present, Marlboro cigarettes are imported in limited quantities into China. As part of the deal with Chinese National Tobacco, Philip Morris International will also help sell some Chinese tobacco products internationally.

In China, Philip Morris International is going to have to grow from a small base against entrenched local brands, says Standard & Poor’s analyst Ken Shea.

“It’s going to be a good long-term move, but is unlikely to move the needle immediately,” he said.

Earlier Wednesday, Altria confirmed that it would spin off its Philip Morris International unit. While fast-growing emerging markets offer the Marlboro maker the potential for speedy growth, navigating these markets can be tricky due to local monopolies, regulations on foreign investment and the prevalence of alternative, regional tobacco products.

The spin-off would transform Altria into a domestic tobacco company from a global conglomerate. It would be left with Philip Morris USA and a 28.6% stake in brewer SABMiller PLC (SAB.JO).

Washington, D.C. – As state legislatures across the country convene their 2008 sessions, an important new study provides powerful evidence of the direct relationship between increased funding for state tobacco prevention and cessation programs and declines in adult smoking.

The study, being published in the February 2008 issue of the American Journal of Public Health, examined state tobacco prevention and cessation funding levels from 1995 to 2003 and found that the more states spent on these programs, the larger the declines they achieved in adult smoking, even when controlling for other factors such as increased tobacco prices. The researchers also calculated that if every state had funded their programs at the levels recommended by the U.S. Centers for Disease Control (CDC) during that period, there would have been between 2.2 million and 7.1 million fewer smokers in the United States by 2003. The Campaign for Tobacco-Free Kids estimates that such smoking declines would have saved between 700,000 and 2.2 million lives as well as between $20 billion and $67 billion in health care costs.

The new study was conducted by researchers at the CDC and RTI International, an independent nonprofit research institute based in Research Triangle Park, N.C. The study adds to earlier research, using similar methods, which demonstrated the same type of relationship between program spending and youth smoking declines. These studies, along with reviews by the Institute of Medicine of the National Academies of Sciences, the President’s Cancer Panel and numerous other experts demonstrate conclusively that state tobacco prevention and cessation programs work to prevent kids from smoking and help adults quit, thereby saving lives and health care dollars.

This overwhelming evidence that state tobacco prevention and cessation programs work and deliver so many health and financial benefits leaves elected leaders with no excuse for failing to fund such programs in every state at CDC-recommended levels. The decision should be an easy one:

* The problem is huge and warrants urgent action. Tobacco use is the leading preventable cause of death in the U.S, resulting in 400,000 premature deaths and costing the nation nearly $100 billion in health care bills each year.

* States have the revenue. The states will collect about $25 billion this year in revenue from the tobacco settlement and tobacco taxes. It would take just 15 percent of this revenue for each state to fund a tobacco prevention and cessation program at the CDC’s new recommended levels. Right now, the states are spending less than 3 percent.

* The public supports it. Poll after poll shows that Americans strongly believe tobacco settlement and tax dollars should be spent on tobacco prevention.

States with well-funded programs have reported strong success. Washington state, with a well-funded tobacco prevention and cessation program, has reduced adult smoking by 24 percent since it launched the program in 1999. Washington’s dramatic decline in adult smoking translates to more than 230,000 fewer smokers in the state, saving about $2.1 billion in future health care costs

Despite the overwhelming evidence that state tobacco prevention and cessation programs are highly effective when they are funded appropriately, only three states currently fund these programs at even the minimum level recommended by the CDC. This is part of the reason that declines in both youth and adult smoking in the United States have stalled in recent years. With the tobacco companies spending more $13.4 billion per year marketing their deadly products, it is imperative that state leaders act now to fund programs that we know work to prevent kids from smoking and help smokers quit.

The CDC recently updated its recommendations to the states for funding and implementing tobacco prevention and cessation programs, taking into account new scientific evidence, state experiences and cost factors such as inflation and population increases since last issuing its recommendations in 1999 (see CDC’s Best Practices for Comprehensive Tobacco Control Programs – 2007). The new study should spur state legislatures and governors to heed the CDC’s call for greater investment in programs proven to reduce smoking, save lives, and save money.

By Elizabeth M. Whelan, Sc.D., M.P.H. – American Council on Science and Health

This week’s announcement by Philip Morris that it plans a “global blitz” to dramatically increase the number of cigarette smokers around the world represents the ultimate public health nightmare.

The industry’s insidious strategies to modify cigarettes to meet changing cultural and social needs will add to the allure of this inherently dangerous product: the soon-to-be-launched “Marlboro Intense” will allow smokers to cope with indoor smoking bans by taking quick, deep puffs of a shorter but more potent cigarette during a quick outdoor break, while innovative clove-infused cigarettes will suit the taste of smokers in Southeastern Asia. The end results will be hundreds of millions of new cigarette addicts and the inevitable surge in the full spectrum of devastating cigarette-related diseases. Not only will the increase in smoking lead to soaring numbers of premature deaths, but the economies of these countries will suffer devastating losses due as large portions of their workforce are incapacitated and demand smoking-related medical care.

Altria brags that by spinning off Philip Morris International, the newly-independent company will be outside of the reach of most regulatory efforts and threats of legal liability. It considers itself autonomous, responsible to no one at all.

Where is the outrage at this brazen campaign that will cause the deaths of millions of people in the next several decades?

Where, for example, is the voice of the Roman Catholic Church, which is apparently so committed to a “pro-life” position? Why are they not deeply concerned about the lives of the millions who will soon die from this now-intensified Philip Morris sales blitz?

•••

To say that the Roman Catholic Church’s stance on the public and personal health implications of cigarette smoking has been dismal would be an understatement. The Church has been largely mute on the subject, more concerned with the moral depravity of alcohol and illicit drug use than smoking. Indeed back in the 1950s, when the avalanche of data on smoking and disease began to hit the medical journals, the cigarette companies were terrified that the Catholic Church might make a pronouncement about smoking’s imperiling of human life and health.

But the Church did not. Of course, the tobacco folks had a real scare back in 1957 when Pope Pius XII suggested that the Jesuit order give up smoking. There were only 33,000 Jesuits in the world at that point, so the industry was not afraid of losing lots of priest-customers. But they did worry that the Pope might eventually ask the question, as a magazine headline once put it: “When Is a Cig a Sin?” — and, worse yet, that the answer might be “always.”

So the spin doctors in the industry worked on the Pope’s Jesuit statement and came up with this: an industry rep wrote in the United States Tobacco Journal, “the Jesuits have a way of life that is traditionally stricter than other segments of the clergy or laity in general.” What the Pope was really saying, the industry argued, was that cigarette smoke is good fun and pleasurable, and the only reason Jesuits should not smoke is that they are supposed to reject human gratification. Thus smoking is fine for everyone else!

•••

Some twenty years ago, while preparing a book on the history of the cigarette in America (A Smoking Gun: How the Tobacco Industry Gets Away With Murder, Stickley, 1984), I wrote to the Cardinal of New York and asked him why the Church had no pronouncements on cigarettes, the leading cause of premature death — a clear threat to the value of life. The letter I received back was scathing, calling me stupid and naive, arguing that I had obviously not traveled outside the U.S. much and seen poverty and hunger — otherwise, I would not be worrying about something as trivial as cigarette smoking.

As a public health professional, I do not consider 485,000 premature deaths annually in the United States to be “trivial.” And I am outraged to see the ongoing marketing of cigarettes here in our country. But the recently-announced move by Philip Morris to addict hundreds of millions more people in Africa, China, Korea, Russia, and beyond is nothing short of appalling. As this international massacre continues — indeed, intensifies — is silence by the Church compatible with a pro-life commitment, or is it just sheer hypocrisy?

Dr. Elizabeth M. Whelan is president of the American Council on Science and Health

All of us understand the seriousness of selling cigarettes to minors. But how can this problem be solved?

A law does exist which makes it illegal to sell cigarettes to minors and it must be enforced and the appropriate punishment be meted out.

Even though a law was introduced last year which banned smoking in most public spaces, smoking is still a problem among Hong Kong’s youth and there does not appear to be any sign of improvement.

One way, therefore, in which we may be able to curb the habit is to punish vendors who sell cigarettes to minors.

It is a bit like littering. If someone is caught and prosecuted for littering in the street, they are less likely to litter again. Similarly with vendors, they may think twice about selling cigarettes to a minor if they have been prosecuted in court.

Although that is a short-term solution to the problem, it could prove effective.

Philip Bowring (“Sharing the spoils”, January 23) advocates a cut in tobacco tax, “another impost that most hurts lower-income earners who are generally more frequent smokers”. Does Bowring realise cutting tax will sign the death warrants of our youth? The tax on tobacco, which has not increased here since 1999, should be tripled immediately. This will save lives.

An excise tax increase is proven worldwide to be the most effective fiscal health care method of preventing youth tobacco use. It lowers the levels of adult smoking significantly.

The New York tax on a packet of cigarettes, is HK$28, in Britain it is HK$62, in Hong Kong HK$16.

Hong Kong, as an SAR of China, is bound to comply with the directive of the Framework Convention on Tobacco Control, which mandates signatories increase tobacco taxes forthwith and regularly. Ratified signatories must acknowledge FCTC is grounded in fundamental human rights. Guidelines should affirm the right to effective protection from exposure to tobacco smoke is implicit in the fundamental right of all persons to life, a healthy environment and enjoyment of the highest attainable standard of health. To underscore effective protection of health requires the creation of 100 per cent smoke-free environments. Providing just ventilation and designated smoking rooms is not acceptable.

This duty of care to protect against this epidemic is implicit in the right to life recognised by the Universal Declaration of Human Rights; the fundamental right of all persons to enjoy the highest attainable health standard as recognised in the Constitution of the World Health Organisation, International Covenant on Economic, Social and Cultural Rights, and other international legal instruments. Parties’ obligations to protect their citizens from exposure to tobacco smoke flow from the citizens’ universal rights as recognised in numerous other international instruments.

Clear the Air urges any parent who cares for the welfare of their children to e-mail the financial secretary at budget@fstb.gov.hk urging him to adopt a stringent increase on tobacco tax.